How to Tell a CEO: YOU’RE FIRED!

It was no surprise to me when the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling found the management of BP (NYSE:BP) and two of its contactors, Transocean (NYSE:RIG) and Halliburton (NYSE:HAL), at fault for their missteps, which played an integral part to the deaths of 11 rig workers and the worst offshore oil spill in U.S. history.

Leaders are defined by the choices they make and how they react in moments of crisis. Clearly, in this instance, the management of these companies looked at their bottom line and were blinded by greed and stupidity and did not do their due diligence in assessing and analyzing risk.

Their foolish, short-sighted decisions have left a void in the 11 families who lost their loved ones and local economies that base their livelihood on the environment struggling.

I decided to have a discussion on leadership with Sydney Finkelstein, Steven Roth Professor of Management at the Tuck School of Business at Dartmouth College.

LL: Who were the worst CEOs of 2010?

SF: There were several. You had Tony Hayward of BP (NYSE:BP), he at first was pleading to get his life back when the oil spill was raging. Then while testifying to Congress he barely concealed his arrogance. Then while oil continue to spew into the Gulf, he he watching yacht races. Getting back to his managment, he built a culture where cutting costs took precedence over safety

The next ceo would be Mark Hurd, CEO of HP (NYSE:HPQ). Too many lonely nights on the road may have led to some bad judgments. Also, performance of HP has not been great in last 2-3 years under Hurd. He also had a long record of a sense of entitlement that may have been a warning sign

Another CEO I would name would be William Weldon, CEO of Johnson & Johnson (NYSE:JNJ). What happened to the company that gave us the Tylenol recall? The safety problems in multiple divisions spoke directly to Weldon’s culpability.

You also had intense performance pressures without adequately emphasizing values (ironic given the iconic J&J credibiilty). Its culture is also like BP when it comes to hiring/firing and incentives. Since then, their consumer division CEO walked the plank, and 3 quality gurus have been appointed in each of the 3 divisions (consumer, pharma, devices/diagnostics).

Recent valuation of Groupon is $5 billion, but that’s not the same as realizing $6 billion in value. Mason also ignored the potential of Google to leverage and invest talent and more money in Groupon.

Finally I would end the list with Olli-Pekka Kallasvuo, CEO of Nokia (NYSE:NOK) (fired Sept 2010). Like Motorola years earlier, Nokia kept focusing on incremental changes in their phones, while missing the big, secular change in the entire industry. How could they miss this?

LL: What do these CEOs have in common?

SF: That unfortunate combination of believing they’ve got it all figured out while turning a blind eye to early warning signs. These sins were the same ones that led to the downfall of Enron, the dismantling of Tyco (NYSE:TYC), and the more recent banking crisis. As it turns out, these same mistakes keep repeating themselves, and are in a big part of why smart executives fail.

LL: What qualities, for lack of a better word did they all share?

SF: I’m often asked about CEO arrogance, and there’s no question that it plays a big role in why things go wrong at the top. I’ve tried to dissect arrogance into the underlying symptoms, in much the same way that a cardiologist tries to identify the underlying reasons for why someone has a heart problem. Here are a few of the key symptoms:

“Don’t tell me—I know.” Therefore, there is no possibility of learning. Tony Hayward’s inability to learn any of the key lessons from the Texas City refinery explosion is a classic example. History does repeat itself.

A sense of entitlement. Lots of examples, from Mark Hurd (NASDAQ:ORCL) to most of Wall Street.

Obsessed with public image. Citigroup (NYSE:C) spent $400 million for naming rights to the new NY Mets ballpark in 2008, right before the financial crisis hit.

LL: Looking at 2011- what is looking to be a big story when it comes to testing management leadership?

SF: One of the biggest stories will be Wikileaks, and how companies deal with the fallout when unvarnished insider accounts of how business is done comes to light.

Not only is this Julian Assange, perhaps exposing Bank of America (NYSE:BAC). Like many things in life, once an “innovator” does something new, copycats tend to follow.

Who knows how many disgruntled IT geeks in Fortune 500 companies are right this minute copying email trails to CDs? Or the millions of people whose careers are being derailed by layoffs? What if they want a little revenge, damn the consequences?

If Wikileaks morphs from an isolated ideologue into the bloodstream of corporate America, the problem will become monumental. I’m quite certain that every major company has a crisis team working on this possibility right now.